Reverse mortgages move ahead

According to the U.S. Department and Urban Development (HUD) a total of 157 home equity conversion mortgage loans were made in 1990. By 2005, the number had skyrocketed to 43,131. These mortgages were created in 1987 by HUD with a goal of providing greater financial security to elderly American homeowners. They will continue to grow in numbers.

Just what are reverse mortgages? They are a loan against home equity that requires no repayment as long as the owner continues to live in the home. Reverse mortgages allow homeowners to continue to live in their home while borrowing against the equity.

Those who can get the most from reverse mortgages would be homeowners older than the minimum age of 62. An older homeowner would have fewer remaining years for the reverse mortgage advances and less accumulated interest and service fees.

Homeowners with small balances on their home mortgage or those who are debt free can receive larger amounts. Homeowners with little equity in their homes are limited to smaller advances.

The good thing about the mortgage is that the owners can keep the home and receive cash. They can stay in the house and convert their equity to cash without having to make current loan payments.

Older borrowers are able to obtain a larger monthly advance because they have a shorter life expectancy.

The down-side is that the loan would be expensive for short-time borrowers because of substantial loan origination fees and mortgage insurance premiums that are required.

There is also a risk that reverse mortgage advances will be considered income and will affect Medicaid coverage, if it exceeds Medicaid asset limits.

Not everyone will be interested in these loans. However, some Spokane homeowners may benefit if they can comply with the plan. Best thing to do is to get with an accountant who knows real estate mortgage law or companies that help those who are interested in this new HUD plan.

According to the Journal of Accountancy, increased life expectancy has caused the elderly to need more funds after retiring, especially if they elect early retirement. The house is often the most valuable asset an individual owns. Reverse mortgages allow homeowners to continue to live in their homes while borrowing against the equity.

A lump-sum advance from a reverse mortgage may be used to pay off the existing first mortgage and eliminate the monthly payment, reducing monthly cash payments.

Caution is required because reverse mortgages can be prohibitively expensive unless the homeowner has a substantial amount of home equity.